AI assistant
BZAM LTD. Interim / Quarterly Report 2020
47394_rns_2020-08-12_8e4c6592-2201-4df8-8b81-8025d4c08aed.pdf
Interim / Quarterly Report
Open in viewerOpens in your device viewer
The Green Organic Dutchman Holdings Ltd. Unaudited Interim Condensed Consolidated Financial Statements For the three and six months ended June 30, 2020 and June 30, 2019
The Green Organic Dutchman Holdings Ltd. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(expressed in thousands of Canadian dollars, except common shares outstanding)
| Notes | As atJune 30, 2020 | As atDecember 31, 2019 | |
|---|---|---|---|
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | $18,777 | $27,569 | |
| Restricted cash | 15[a] | 219 | 8,578 |
| Refundable sales taxes receivable | 2,546 | 8,553 | |
| Trade receivables | 16 | 2,656 | 1,488 |
| Biological assets | 7 | 2,336 | 2,771 |
| Inventories | 8 | 13,854 | 8,268 |
| Prepaid expenses and deposits | 7,873 | 8,382 | |
| Due from related parties | — | 699 | |
| Other current assets | 10 | 627 | 534 |
| Deferred financing costs | 1,385 | 1,324 | |
| $50,273 | $68,166 | ||
| Non-current assets | |||
| Property, plant and equipment | 5 | 208,807 | 237,033 |
| Intangible assets | 6 | 10,729 | 12,019 |
| Goodwill | 6 | 8,481 | 8,101 |
| Investments in associates | 9 | 2,194 | 4,918 |
| Other assets | 10, 15[a] | 12,393 | 11,944 |
| Total assets | $292,877 | $342,181 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||
| Current liabilities | |||
| Current portion of accounts payable and accrued liabilities | $32,672 | $52,074 | |
| Income tax payable | — | 39 | |
| Deferred revenue | 135 | — | |
| Due to related parties | 279 | — | |
| Current portion of loans | 4 | 28,626 | 524 |
| Current portion of lease liabilities | 11 | 858 | 590 |
| 62,570 | 53,227 | ||
| Non-current liabilities | |||
| Loans | 4 | 9,307 | 16,909 |
| Lease liabilities | 11 | 4,229 | 2,955 |
| Accrued liabilities | 1,710 | — | |
| Contingent consideration | 101 | 462 | |
| Deferred tax liability | 752 | 1,028 | |
| 16,099 | 21,354 | ||
| Total liabilities | $78,669 | $74,581 | |
| Shareholders' equity | |||
| Share capital | 12 | 447,830 | 428,651 |
| Contributed surplus | 13 | 104,326 | 95,763 |
| Deficit | (336,824) | (254,018) | |
| Reserve for foreign currency translations | (164) | (2,241) | |
| Total Shareholders' Equity attributed to The Green Organic Dutchman | |||
| Holdings Ltd. | $215,168 | $268,155 | |
| Non-controlling interests | (960) | (555) | |
| Total Shareholders' Equity | 214,208 | 267,600 | |
| Total Liabilities and Shareholders' Equity | $292,877 | $342,181 | |
| Total number of common shares outstanding | 384,653,284 | 312,733,244 | |
| Going Concern | 2 | ||
| Commitments and contingencies | 15 | ||
| Events after the reporting period | 2, 20 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
The Green Organic Dutchman Holdings Ltd. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (Unaudited)
(expressed in thousands of Canadian Dollars, except per share amounts)
| Notes2020201920202019Revenue$4,825$2,896$7,884$5,301Excise duties(403)—(531)—Net revenue4,4222,8967,3535,301Cost of sales related to inventory production4,0289445,9441,927Cost of sales related to business combination fair valueadjustments to inventories———270Gross profit before change in fair value of biological assets3941,9521,4093,104Realized fair value adjustment on sale of inventory(1,821)(5)(2,366)(5)Unrealized gain on changes in fair value of biological assets72,753103,989225Gross profit$1,326$1,957$3,032$3,324Operating expensesSales and marketing expenses$2,240$3,930$4,703$6,926Research and development expenses3195868391,022General and administrative expenses5,7108,68715,50217,366131,6574,4334,1277,8525, 61,2817383,0001,29919$11,207$18,374$28,171$34,465(9,881)(16,417)(25,139)(31,141)16[c]785(315)(1,729)(475)(877)(143)(1,016)(232)4(250)—(250)—4(33)—(33)—988692692,055Strategic business initiatives—(606)—(606)Share of loss on investments in associates9—(230)(148)(452)Revaluation of contingent consideration92175361200Gain on disposal of assets576—44—Impairment of investment in associates9——(3,082)—Impairment charge for non-financial assets5, 6(52,765)———Loss before income taxes(9,990)(16,667)(83,488)(30,651)Current income tax recovery (expense)—(93)—(214)Deferred income tax recovery215157277171Net loss$(9,775)$(16,603)$(83,211)$(30,694)Other comprehensive (income)/lossForeign currency translation (income)/loss471156(1,369)1,458Foreign currency translation (income)/loss on equity method9investment(202)547(708)595$(10,044)$(17,306)$(81,134)$(32,747)The Green Organic Dutchman Holdings Ltd.(9,655)(16,440)(82,806)(30,447)Non-controlling interests(120)(163)(405)(247)Comprehensive loss attributable to:The Green Organic Dutchman Holdings Ltd.(9,924)(17,143)(80,729)(32,500)Non-controlling interests(120)(163)(405)(247)$(0.03)$(0.06)$(0.25)$(0.11) | June 30, | For the three months endedJune 30, | For the six months endedJune 30, | June 30, | |
|---|---|---|---|---|---|
| Share based compensation | |||||
| Depreciation and amortization | |||||
| Total operating expenses | |||||
| Loss from operations | |||||
| Foreign exchange gain (loss) | |||||
| Finance costs | |||||
| Accretion expense | |||||
| Modification of debt | |||||
| Finance income | |||||
| Comprehensive loss | |||||
| Net loss attributable to: | |||||
| Basic and diluted net loss per share | |||||
| Weighted average number of outstanding common shares | 343,306,601 | 275,165,384 | 328,353,793 | 273,234,673 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
| Controlling(555)——————(285)(840)————————(120)(960)InterestsNon-$Accumulated(254,018)——————(73,151)(327,169)————————(9,655)(336,824)deficit$Reserve fortranslations(2,241)——————2,346105————————(269)(164)currencyforeign$Contributed2,205(339)--(75)1,876-99,4304,5331,649(31)---(1,876)-104,32695,763621surplusTotal$——————1,876—1,876————————-(1,876)Shares tobe issued$7,972———————7,972—————————7,972Escrowedshare units$contributed—————————————1,1292721,4018,15064810,199surplusOther$Reserve for————————————64,41564,4154,533(31)(8,150)61,388621warrants$share basedReserve for22,247——————————24,7672,205(339)(272)(75)23,7661,649(648)payments$———16,2208————1,876—428,65115763175429,505221447,830Amount$312,733,244—847,600500—27,174——313,608,51863,661,700——500,000——6,858,375—384,653,28424,691CommonShares#13[a],13[a],Notes13[b]13[b]13[c]13[a]13[c]13[c]13[a]12121212Warrants issued in connection withTransfer from Shares to be issuedBalance at December 31, 2019Comprehensive loss for periodComprehensive loss for periodRSU exercised during periodBalance at March 31, 2020Share based compensationShare based compensationBalance at June 30, 2020Convertible Shares IssuedExercise of stock optionsBought deal offeringsExercise of warrantsExercise of warrantsShares to be issuedExpiry of warrantsExpiry of optionsExpiry of optionsdebt | Share Capital | Contributed Surplus | ||||||
|---|---|---|---|---|---|---|---|---|
| Total | ||||||||
| $ | ||||||||
| 267,600 | ||||||||
| 2,220 | ||||||||
| 424 | ||||||||
| 1 | ||||||||
| - | ||||||||
| - | ||||||||
| 1,876 | ||||||||
| (71,090)201,031 | ||||||||
| 20,753 | ||||||||
| 1,657 | ||||||||
| 621 | ||||||||
| 190 | ||||||||
| - | ||||||||
| - | ||||||||
| - | ||||||||
| - | ||||||||
| (10,044) | ||||||||
| 214,208 | ||||||||
| 3 | ||||||||
The Green Organic Dutchman Holdings Ltd. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(expressed in thousands of Canadian dollars)
| For the three months ended | For the six months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Notes | June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||
| OPERATING ACTIVITIES | |||||||||
| Net loss | $ | (9,775)$ | (16,603)$ | (83,211)$ | (30,694) | ||||
| Items not affecting cash: | |||||||||
| Impairment of property, plant and equipment | 5 | — | — | 51,725 | — | ||||
| Impairment of investment in associates | 9 | — | — | 3,082 | — | ||||
| Impairment of intangible assets | 6 | — | — | 1,040 | — | ||||
| Share based compensation | 131,657 | 4,733 | 4,127 | 8,152 | |||||
| Depreciation of property, plant and equipment | 5 | 958 | 422 | 2,221 | 684 | ||||
| Amortization of intangible assets | 6 | 323 | 316 | 779 | 615 | ||||
| Realized fair value adjustment on sale of inventory | 1,821 | — | 2,366 | — | |||||
| Unrealized gain on change in fair value of biological assets | 7 | (2,753) | (10) | (3,989) | (225) | ||||
| Accretion | 4 | 250 | — | 250 | — | ||||
| Share of loss on investments in associates | 9 | — | 230 | 148 | 452 | ||||
| Revaluation of contingent consideration | (92) | (175) | (361) | (200) | |||||
| Loss (gain) on disposals of property, plant and equipment | 5 | (76) | 29 | (44) | 36 | ||||
| Debt modification | 4 | 33 | — | 33 | — | ||||
| Deferred financing costs expensed | 276 | — | 276 | — | |||||
| Current income tax recovery expense | — | 93 | — | 214 | |||||
| Deferred income tax recovery | (215) | (157) | (277) | (171) | |||||
| Income taxes paid | (14) | (26) | (14) | (26) | |||||
| Changes in non-cash operating working capital items | 14 | (678) | (13,378) | 467 | (24,513) | ||||
| Net cash used in operating activities | $(8,285)$ | (24,526)$ | (21,382)$ | (45,676) | |||||
| INVESTING ACTIVITIES | |||||||||
| Additions to property, plant and equipment | 5 | (10,574) | (77,274) | (36,109) | (103,270) | ||||
| Transfer from (to) restricted cash | 15[a] | — | (4,000) | 8,359 | (4,000) | ||||
| Advances from (to) related parties, net of repayments | 727 | 11 | 978 | (98) | |||||
| Net cash outflow on other investment | — | (1,434) | — | (1,434) | |||||
| Additions to intangible assets | 6 | (225) | (957) | (225) | (1,870) | ||||
| Net cash used in investing activities | $(10,072)$ | (83,654)$ | (26,997)$ | (110,672) | |||||
| FINANCING ACTIVITIES | |||||||||
| Proceeds from issuance of shares and warrants, net of share issue | |||||||||
| costs | 12 | 20,753 | — | 20,753 | — | ||||
| Proceeds from issuance of debt, net of issue costs | 4 | 12,351 | — | 19,009 | — | ||||
| Proceeds from the exercise of stock options and warrants | 12 | 190 | 2,234 | 615 | 11,525 | ||||
| Interest received | 20 | 2,014 | 144 | 2,388 | |||||
| Interest paid on lease liabilities | 11 | (115) | (61) | (248) | (61) | ||||
| Interest paid on debt | 4 | (1,101) | — | (1,621) | — | ||||
| Principal payments of lease liabilities | 11 | (87) | (164) | (169) | (164) | ||||
| Repayments of short-term loans | — | 15 | — | (156) | |||||
| Loan receivable | — | (1,451) | — | (1,451) | |||||
| Capital contributed by non-controlling interest | — | — | — | 40 | |||||
| Net cash provided by financing activities | $32,011$ | 2,587$ | 38,483$ | 12,121 | |||||
| Net cash outflow | $ | 13,654$ | (105,593)$ | (9,896)$ | (144,227) | ||||
| Net effects of foreign exchange | 276 | (120) | 1,104 | (607) | |||||
| Cash, beginning of period | 4,847 | 174,428 | 27,569 | 213,549 | |||||
| Cash and cash equivalents, end of period | $ | 18,777$ | 68,715$ | 18,777$ | 68,715 | ||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
(expressed in thousands of Canadian Dollars except as otherwise indicated)
- NATURE OF ACTIVITIES The Green Organic Dutchman Holdings Ltd. ("TGODH" or the "Company") was incorporated on November 16, 2016, under the Canada Business Corporations Act ("CBCA"). The Company is a reporting issuer domiciled in Canada whose shares and certain warrants are publicly traded on the Toronto Stock Exchange ("TSX") under the symbol "TGOD" and on the OTCQX under the symbol "TGODF". The Company's registered and head office is located at 6205 Airport Road, Building A – Suite 200, Mississauga, ON, L4V 1E3. These unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2020 and 2019 ("Interim Consolidated Financial Statements") include the financial statements of The Green Organic Dutchman Holdings Ltd. and its subsidiaries from the date the Company gained control of each subsidiary.
The Company's wholly-owned subsidiaries, The Green Organic Dutchman Ltd. ("TGOD") and Medican Organic Inc. ("Medican") are licensed producers under the Cannabis Act (Canada) and hold various licences to produce cannabis plants, cannabis plant seeds, dried cannabis, fresh cannabis, cannabis oils, cannabis topicals, cannabis extracts and edible cannabis and to sell such cannabis products within Canada to provincially authorized retailers or distributors and federally licensed entities. The Company has built a cultivation facility near Hamilton, Ontario and is building another facility located in Valleyfield, Québec. 2. BASIS OF PRESENTATION
In addition to its Canadian operations, the Company, through its subsidiaries and strategic investments, is pursuing an international growth strategy, including interests in a hemp cultivation and extraction business based in Poland. The Company has also formed a strategic partnership for the distribution of cannabis and hemp-derived medical products in Mexico and joint ventures in Denmark for producing organic medical cannabis and developing cannabis genetics. It has also established a company in Germany for the distribution of medical cannabis.
The outbreak of the novel strain of the coronavirus, SARS-COV-2 ("COVID-19"), and its eventual declaration as a pandemic by the World Health Organization ("WHO") on March 11, 2020 has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures have caused material disruption to businesses globally resulting in an economic slowdown. The Company rapidly implemented strategic measures to protect its global workforce from and endeavouring to mitigate any long-term impacts of the pandemic on its business which remain unknown.
[i] Going concern
These Interim Consolidated Financial Statements have been prepared on a going concern basis which presumes that the Company will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of its operations.
As of June 30, 2020, the Company had negative working capital of $12,297 (December 31, 2019 – positive working capital of $14,939) and an accumulated deficit of $336,824 (December 31, 2019 - $254,018). During the six months ended June 30, 2020, the Company used cash in operating activities of $21,382 (six months ended June 30, 2019 - $45,676) resulting primarily from the net loss of $83,211 (six months ended June 30, 2019 - $30,694) offset by items not affecting cash such as depreciation, amortization, stock based compensation and impairment charges of $62,974 (six months ended June 30, 2019 - $9,151). The Company has insufficient cash to fund its planned operations, including debt repayments for the next twelve months (see note 4). The Company's ability to continue as a going concern is dependent upon its ability to generate sufficient revenues and positive cash flows from its operating activities to meet its obligations.
The Company may need to reschedule its current debt obligations or obtain further financing in the form of debt, equity or a combination thereof for the next twelve months. There can be no assurance that the existing debt obligations will be rescheduled or that additional funding will be available to the Company, or, if available, that this financing will be on acceptable terms. If existing debt obligations are not rescheduled or adequate financing is not available, the Company may be required to delay or reduce the scope of any or all of its projects. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.
These Interim Consolidated Financial Statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. Should the Company be unable to generate sufficient cash flow from financing and operating activities, the carrying value of the Company's assets could be subject to material adjustments and other
(expressed in thousands of Canadian Dollars except as otherwise indicated)
adjustments may be necessary to these financial statements should such events impair the Company's ability to continue as a going concern.
Subsequent to June 30, 2020, the Company obtained gross debt proceeds of $3,000 on July 7, 2020 in accordance with the modification of its Revolving Credit Facility (as defined in Note 4), refer to Notes 4 and 20.
[ii] Interim Financial Reporting
These Interim Consolidated Financial Statements have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting" as issued by the International Accounting Standards Board ("IASB"). The same accounting policies and methods of computation were followed in the preparation of these Interim Consolidated Financial Statements as those disclosed in the Company's annual audited consolidated financial statements for the year ended December 31, 2019.
These Interim Consolidated Financial Statements do not include all of the information required for full annual consolidated financial statements and accordingly should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 2019 which are made available on SEDAR at www.sedar.com.
These Interim Consolidated Financial Statements were approved by the Board of Directors of the Company and authorized for issue by the Board of Directors of the Company on August 12, 2020.
- SIGNIFICANT ACCOUNTING POLICIES The preparation of the condensed consolidated interim financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses, consistent with those disclosed in the 2019 annual consolidated financial statements and as described in these condensed consolidated interim financial statements. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Estimates are based on historical experience and other assumptions that are considered reasonable in the circumstances. The actual amount or values may vary in certain instances from the assumptions and estimates made. Changes will be recorded, with corresponding effect in profit or loss, when, and if, better information is obtained.
(a) Measurement Uncertainty
The Company continues to monitor the evolution of the COVID-19 pandemic. The extent to which the COVID-19 pandemic may impact the Company's business and activities will depend on future developments which remain highly uncertain and cannot be predicted with confidence, such as the spread and severity of the disease, the duration of the outbreak including any possible resurgence, and actions taken by authorities to control the spread of the virus, the impact of the pandemic on spending, and the ability or willingness of suppliers and vendors to provide products and services.
Any of these developments, and others, could have a material adverse effect on the Company's business, affairs, operations, results of operations, financial condition, liquidity, availability of credit and foreign exchange exposure. In addition, because of the severity and global nature of the COVID-19 pandemic, it is possible that estimates in the Company's financial statements could change in the near term and the effect of any such changes could be material, which could result in, among other things, an impairment of non-current assets and a change in the expected credit losses on accounts receivable. The Company is constantly evaluating the situation and monitoring any impacts or potential impacts on its business.
(b) Government Grants
The Company applied for and received government grants under the Canadian Emergency Wage Subsidy ("CEWS") provided by the Government of Canada as a result of the COVID-19 pandemic. The Company made an accounting policy choice under IAS 20 - Government Grants to record and present the grants net against the associated salary expenses for which it was subsidizing.
(expressed in thousands of Canadian Dollars except as otherwise indicated)
The following tables illustrate the continuity schedule and presentation of the Company's loans:
| June 30, 2020 | December 31, 2019 | |
|---|---|---|
| Opening Balance | $17,433 | $688 |
| Additions | 21,658 | 21,042 |
| Deferred financing fee | (2,427) | (3,425) |
| Residual fair value of equity portion | (506) | (758) |
| Accretion | 1,757 | 50 |
| Loss on modification of loans | 33 | — |
| Principal payments | — | (123) |
| Effects of movements in foreign exchange | (15) | (41) |
| Ending Balance | $37,933 | $17,433 |
| June 30, 2020 | December 31, 2019 | |
|---|---|---|
| Loans | $37,933 | $17,433 |
| Current portion | (28,626) | (524) |
| Long term portion | $9,307 | $16,909 |
| Senior Loan | $28,626 | $16,909 |
| Revolver Loan | 8,798 | — |
| HemPoland Loan | 509 | 524 |
| $37,933 | $17,433 |
Senior secured credit facility ("Senior Loan")
On December 24, 2019, the Company closed a senior secured first lien credit facility (the "Senior Loan") with a commercial lender. The first tranche of the Senior Loan for gross proceeds of $21,042 was advanced by the lender upon closing at a thirteen percent (13%) rate of interest. Per the Senior Loan agreement, there are no scheduled principal repayments for the first twelve months of the term of the Senior Loan and after which the Company is required to make monthly principal repayments commencing on January 1, 2021 plus interest, with the remaining unpaid balance due upon maturity on June 21, 2021. During the six months ended June 30, 2020, the lender advanced the remaining $6,658 of the first tranche. The second tranche of the Senior Loan included an accordion feature, which made available up to an additional $15,000 which could be advanced upon the achievement by the Company of certain operational milestones. Both tranches of the Senior Loan mature on June 21, 2021. The Company may repay the Senior Loan at any time with a 2% penalty on the outstanding principal of the Senior Loan. The Senior Loan possesses several covenants which the Company has met as at June 30, 2020.
On April 13, 2020, the Company executed an amendment with the lender of the Senior Loan on the $15,000 accordion feature that made the $5,000 of the accordion available upon the Company closing an equity financing which was achieved on April 27, 2020 (see note 12). The Company received gross proceeds from the accordion loan of $5,000 on April 27, 2020. In addition, on April 27, 2020 a total of 1,500,000 warrants were issued to the lender of the Senior Loan exercisable at $0.39 for 36 months from the date of issuance.
Revolving credit facility ("Revolver Loan")
On April 22, 2020, the Company closed a revolving credit facility secured second lien credit facility (the "Revolver Loan") with a commercial lender for gross proceeds of up to $30,000 of which $10,000 was funded on April 22, 2020. The Revolver Loan is secured by a second lien over the assets of the Company with a first lien over certain eligible inventory and trade receivables. If the accounts receivable balance eligible for collateral increases, additional credit is available to the Company up to a maximum of an additional $20,000. The Revolver Loan originally matured on April 1, 2021, subject to renewal for an additional year. In connection with the Revolver Loan, the Company issued the lender of the Revolver Loan 3,000,000 common share purchase warrants of the Company exercisable for a period of 36 months following the date of issuance at a price of $0.39 in exchange for one common share of the Company. A finder's fee of $450 was paid to the lender of the Company's Senior Loan in connection with the closing of the initial proceeds of the Revolver Loan.
(expressed in thousands of Canadian Dollars except as otherwise indicated)
On May 27, 2020, the Company executed an amendment with the lender of the Revolver Loan which extended the original term by six months to October 1, 2021 and allowed the Company to receive $3,000 in gross proceeds from the $20,000 revolving component subject to the same terms of the first $10,000 previously advanced by this lender. In consideration of this, a total of 500,000 warrants were issued on May 22, 2020 to this lender exercisable at $0.50 for 48 months from the date of issuance. The Company received this $3,000 on July 7, 2020, see Note 20 – Events after the reporting period.
HemPoland Loan
The Company assumed a loan payable on certain premises in Poland ("HemPoland Loan") on the acquisition of its wholly owned subsidiary HemPoland on October 1, 2018, of which approximately $509 remained outstanding as at June 30, 2020 (December 31, 2019 - $524). During the six months ended June 30, 2020, the Company received an extension to defer payment on the outstanding balance to December 31, 2021; therefore, the loan payable was reclassified to the long-term portion as at June 30, 2020.
| (223)19,94651,725175,401$$$$$$(21)(8)(72)(21)(4)(50)Right-of-use4,154—6,5288—6,474642209—82621749972,40310assets$$$$$$(562)(4)(1)(93)(20)(283)Construction17,377——————277,646294,4566,021300,08195,06242,282137,344137,344in progress$$$$$$(28)(2)(113)(21)(63)8566—519——Automobiles55137651261332029364294$$$$$$Computerequipment1,337————1,337———1,339—128—856——89826735542$$$$$$(12)(1)——————————improvements7107106989364467452401Building$$$$$$(27)(6)(6)(2)(5)Production15,674381162515,826716,0395,7301,7137,92638938,3132111491equipment$$$$$$(1)————————265237514251613910251741851311Furniturefixturesand$$$$$$(8)————————Buildings56,4802797856,84019,5594567,52127,53636327,89956,75111$$$$$$——————————————————2,6832,6832,683Land$$$$$$Accumulated depreciation andEffects of movements in foreignEffects of movements in foreignEffects of movements in foreignEffects of movements in foreignBalance, December 31, 2019Balance, December 31, 2019Balance, March 31, 2020Balance, March 31, 2020Balance, June 30, 2020Balance, June 30, 2020exchange and otherexchange and otherexchange and otherexchange and otherimpairment:DepreciationDepreciationImpairmentAdditionsAdditionsDisposalsDisposalsDisposalsDisposalsTransfersTransfersCost: | ||||||
|---|---|---|---|---|---|---|
| Total | ||||||
| 359,500 | ||||||
| — | ||||||
| (80) | ||||||
| 379,371 | ||||||
| 6,299 | ||||||
| (258) | ||||||
| 385,189 | ||||||
| 122,467 | ||||||
| 1,263 | ||||||
| (48) | ||||||
| 1,093 | ||||||
| (119) | ||||||
| 176,382 | ||||||
| $7,726$331$28,941$2,683$Net book value, June 30, 2020 | 441$246 | 225$ | 162,737$ | 5,477$ | 208,807$ | |
The Green Organic Dutchman Holdings Ltd. NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (Unaudited) i. Economic environment: On March 11, 2020, the WHO declared the COVID-19 outbreak a global health pandemic which ii. Change in strategic plans: On March 27, 2020, the Company temporarily ceased construction activities and temporarily
(expressed in thousands of Canadian Dollars except as otherwise indicated)
Impairment of property, plant and equipment
The Company performs tests for impairment of its property, plant and equipment, a non-financial asset, when there are indicators of impairment. The following factors were identified as impairment indicators during the six months ended June 30, 2020:
- subsequently has resulted in a change of expected outcomes initially forecasted by management;
- laid off the majority of its staff located at the Quebec Facility due to multiple factors, most particularly the COVID pandemic, affecting planned production output.
As a result of an impairment assessment at March 31, 2020, the cannabis related activities from production in Canada ("the Canadian CGU") as part of the North American segment, yielded a lower recoverable amount in comparison to its applicable carrying values considering different scenarios that have been probability weighted due to economic uncertainty arising from the COVID-19 pandemic. The recoverable amount of this CGU was based on its value in use, determined by discounting the future cash flows to be generated from the continuing use of the CGU using level 3 inputs. As at March 31, 2020, the carrying amount of the CGU was determined to be higher than its recoverable amount based on value in use of $196,600 for which a non-cash impairment charge of $52,765 was recognized during the six months ended June 30, 2020. The Company did not record any impairment charges for its CGUs for the three months ended June 30, 2020 (three and six months ended June 30, 2019 - $nil). iii. Cash flows: Estimated cash flows were projected based on industry and market trends in addition to the Company's own iv. Terminal value growth rate: A long-term growth rate has been determined as the lower of the nominal gross domestic v. Discount rate: The discount rate is based on the Company's weighted average cost of capital ("WACC") based on the
The significant assumptions applied in the determination of the recoverable amount are described as follows:
- internal sources which included estimates for price compression and industry growth. The forecasts were extended to a total of five years (and a terminal period);
- product rate for the country in which the CGU operates and the long-term compound annual growth rate estimated by management. The terminate value growth rate used by management was calculated as 2%;
- Company's cost of capital in which the Company's cost of equity and cost of debt are proportionately weighted. The inputs into the WACC are based on the Company's specific borrowing rate, over 10-year government bonds issued by the government in the relevant market and in the same currency as the cash flows, adjusted for risk premium to reflect both the increased risk of investing in equities generally and the unsystematic risk on the specified CGU. The discount rate calculated and used by management in calculating the recoverable amount tested for impairment as at March 31, 2020 was 16.5%.
The non-cash impairment charge was allocated pro rata on the basis of the carrying amount of each non-financial asset, excluding biological assets and inventories, in the CGU. The non-cash impairment charges specific to property, plant and equipment for the three and six months ended June 30, 2020 was $nil and $51,725, respectively (three and six months ended June 30, 2019 - $nil). Refer to Note 6 for non-cash impairment charge of intangible assets.
(expressed in thousands of Canadian Dollars except as otherwise indicated)
6. INTANGIBLE ASSETS AND GOODWILL
A continuity of the intangible assets and goodwill is as follows:
| HealthCanadaLicence | TechnologyLicences | Website | DistributionChannels | Brands | Otheracquiredrights | Goodwill | Total | ||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Cost: | |||||||||||
| Balance, December 31, 2019 | $5,870 | $ | 2,872 | $400 | $ | 5,500 | $982 | $ | 1,256 | $10,108 | $26,988 |
| Additions | — | — | — | — | — | — | — | — | |||
| Effect of movements in | |||||||||||
| foreign exchange | — | 21 | — | 358 | 64 | 80 | 526 | 1,049 | |||
| Balance, March 31, 2020 | $5,870 | $ | 2,893 | $400 | $ | 5,858 | $1,046 | $ | 1,336 | $10,634 | $28,037 |
| Additions | — | 225 | — | — | — | — | — | 225 | |||
| Effect of movements in | |||||||||||
| foreign exchange | — | 1 | — | (100) | (18) | (22) | (146) | (285) | |||
| Balance, June 30, 2020 | $5,870 | $ | 3,119 | $400 | $ | 5,758 | $1,028 | $ | 1,314 | $10,488 | $27,977 |
| Accumulated amortization | |||||||||||
| and impairment: | |||||||||||
| Balance, December 31, 2019 | $2,596 | $ | 1,035 | $159 | $ | 491 | $88 | $ | 492 | $2,007 | $6,868 |
| Amortization for the period | 48 | 182 | 11 | 100 | 18 | 97 | — | 456 | |||
| Impairment | 685 | 306 | 49 | — | — | — | — | 1,040 | |||
| Effect of movements in | |||||||||||
| foreign exchange | — | 22 | — | 37 | 7 | 36 | — | 102 | |||
| Balance, March 31, 2020 | $3,329 | $ | 1,545 | $219 | $ | 628 | $113 | $ | 625 | $2,007 | $8,466 |
| Amortization for the period | 38 | 55 | 9 | 103 | 18 | 100 | — | 323 | |||
| Effect of movements in | |||||||||||
| foreign exchange | — | 1 | — | (11) | (2) | (10) | — | (22) | |||
| Balance, June 30, 2020 | $3,367 | $ | 1,601 | $228 | $ | 720 | $129 | $ | 715 | $2,007 | $8,767 |
| Net book value, June 30, | |||||||||||
| 2020 | $2,503 | $ | 1,518 | $172 | $ | 5,038 | $899 | $ | 599 | $8,481 | $19,210 |
| Impairment of intangible assets | |||||||||||
| During the six months ended June 30, 2020, the Company recognized non-cash impairment charges for intangible assets within | |||||||||||
| its Canadian CGU as described in Note 5, of which $1,040 related to intangible assets (six months ended June 30, 2019 - $nil). | |||||||||||
| The Company's did not record any impairment charges for the three months ended June 30, 2020 (three months ended June 30, | |||||||||||
| 2019 - $nil). | |||||||||||
| BIOLOGICAL ASSETS | |||||||||||
| As at June 30, 2020, the Company's biological assets consisted of cannabis seeds and cannabis plants. The continuity of the | |||||||||||
| Company's biological assets is as follows: | |||||||||||
| Biological asset | |||||||||||
| Capitalized cost | fair value | Amount | |||||||||
| adjustment |
Impairment of intangible assets
| Biological asset | |||
|---|---|---|---|
| Capitalized cost | fair valueadjustment | Amount | |
| Balance, January 1, 2019 | 265 | 130 | 395 |
| Purchase of seeds | 12 | — | 12 |
| Unrealized gain on changes in fair value of biological assets | — | 2,505 | 2,505 |
| Production costs capitalized | 2,784 | — | 2,784 |
| Write-down of capitalized costs | (341) | — | (341) |
| Transfer to inventory upon harvest | (1,477) | (1,107) | (2,584) |
| Balance, December 31, 2019 | $1,243$ | 1,528$ | 2,771 |
| Unrealized gain on changes in fair value of biological assets | — | 3,989 | 3,989 |
| Production costs capitalized | 2,640 | — | 2,640 |
| Transfer to inventory upon harvest | (3,011) | (4,053) | (7,064) |
| Balance, June 30, 2020 | $872$ | 1,464$ | 2,336 |
(expressed in thousands of Canadian Dollars except as otherwise indicated)
The Company measures its biological assets at their fair values less estimated costs to sell. This is determined using a model which estimates the expected harvest yields in grams for plants currently being cultivated, and then adjusts that amount for the expected selling price per gram, waste and also for any additional costs to be incurred, such as post-harvest cost.
The following significant unobservable inputs, all of which are classified as level three on the fair value hierarchy, were used by management as part of this model:
- Estimated selling price per gram calculated as the expected approximate future per gram selling prices of the Company's cannabis products. With no extensive history of sales, the Company evaluated industry data which is expected to closely approximate the Company's expected selling prices.
- Stage of growth represents the weighted average number of weeks out of the estimated week growing cycle that biological assets have reached as of the measurement date based on historical experience. The Company accretes fair value on a straight-line basis according to the stage of growth and estimated costs to complete cultivation.
- Yield by plant represents the expected number of grams of finished cannabis inventory which are expected to be obtained from each harvested cannabis plant based on historical experience.
| Yield by plant – represents the expected number of grams of finished cannabis inventory which are expected to beobtained from each harvested cannabis plant based on historical experience.The inter-relationship between these aforementioned unobservable inputs and the fair-value of the biological assets is suchthat the carrying value of the biological assets as at June 30, 2020 and December 31, 2019 would increase (decrease) if anyof these inputs were to be higher (lower).Other unobservable, level three inputs into the biological asset model include estimated post harvest costs, costs to completeand wastage. These additional level three inputs are not considered to be significant inputs.The following table quantifies each significant unobservable input, and provides the impact of a 10% increase or decreasein each input would have on the fair value of biological assets:As atImpact of 10%As atDecember 31,change as atJune 30, 20202019June 30, 20202019Estimated net selling price per gram (1)$3.18 to $7.41$1.50 to $6.29$ 558Estimated stage of growth8 to 9 weeks8 to 9 weeks$ 537Estimated yield of agricultural produce by plant (2)46 to 98 grams70 to 75 grams$ 264(1)The estimated net selling prices per gram is based on the negotiated distribution selling prices which exclude duties but included anestimate for the selling price of trim as at December 31, 2019 collected as part of the harvesting process which may have value in theoil production process.(2)The estimated yield varies based on the Company's different cannabis strains.The Company's estimates are, by their nature, subject to change. Changes in the significant assumptions described will bereflected in future changes in the gain or loss on biological assets. There were no changes between fair value hierarchy | biological assets have reached as of the measurement date based on historical experience. The Company accretesfair value on a straight-line basis according to the stage of growth and estimated costs to complete cultivation. | |||
|---|---|---|---|---|
| Impact of 10%change as atDecember 31, | ||||
| $ 466 | ||||
| $ 163 | ||||
| $ 303 | ||||
| levels. |
- estimate for the selling price of trim as at December 31, 2019 collected as part of the harvesting process which may have value in the oil production process.
| Hemp and Hemp | As at | ||
|---|---|---|---|
| Dried Cannabis | Derived Products | June 30, 2020 | |
| Raw Materials and Packaging | $3,488$ | 1,344 | $4,832 |
| Work-in-progress | 4,756 | 2,599 | 7,355 |
| Finished Goods | 1,007 | 660 | 1,667 |
| Total Inventory | $9,251$ | 4,603 | $13,854 |
| The Company's inventory assets include the following as of June 30, 2020 and December 31, 2019: | ||||||
|---|---|---|---|---|---|---|
| Dried Cannabis | Hemp and HempDerived Products | As atJune 30, 2020 | ||||
| Raw Materials and Packaging | $ | 3,488 | $ | 1,344$ | 4,832 | |
| Work-in-progress | 4,756 | 2,599 | 7,355 | |||
| Finished Goods | 1,007 | 660 | 1,667 | |||
| Total Inventory | $ | 9,251 | $ | 4,603$ | 13,854 | |
| Dried Cannabis | Hemp and HempDerived Products | As atDecember 31, 2019 | ||||
| Raw Materials | $ | — | $ | 1,566$ | 1,566 | |
| Work-in-progress | 2,041 | 2,442 | 4,483 | |||
| 518 | 735 | 1,253 | ||||
| Finished Goods | ||||||
| Packaging and Supplies | 805 | 161 | 966 | |||
| Total Inventory | $ | 3,364 | $ | 4,904$ | 8,268 | |
| 9. | INVESTMENTS IN ASSOCIATES | |||||
| The carrying value of investments in associates consist of: | ||||||
| Balance, | Share of net | Foreign | Balance, | |||
| Note | December 31, 2019 | income (loss) (1) | exchange gain | Impairment | June 30, 2020 | |
| QuebecCo | 9 [a] | 2,191 | 3 | — | —2,194 |
| Balance, | Share of net | Foreign | Balance, | |||
|---|---|---|---|---|---|---|
| Note | December 31, 2019 | income (loss) (1) | exchange gain | Impairment | June 30, 2020 | |
| QuebecCo | 9 [a] | 2,191 | 3 | — | — | 2,194 |
| Epican Medicinals Ltd. | 9 [b]2,727 | (151) | 506 | (3,082) | — | |
| 4,918 | (148) | 506 | (3,082) | 2,194 |
(1) Represents an estimate of the Company's share of net loss based on the latest available information of each investee.
[a] Investment in QuébecCo
The Company holds 2,001,134 Class A share of QuébecCo representing a 49.99% interest. QuébecCo holds a property located in the City of Salaberry-de-Valleyfield, Québec with a carrying value of $4,002 and negligible liabilities.
[b] Investment in Epican Medicinals Limited ("EML")
During the six months ended June 30, 2020, the Company recognized an asset-specific impairment of its investment in EML of $3,082 ($nil for the three months ended June 30, 2020, and three and six months ended June 30, 2019) due to changing market conditions in Jamaica and the COVID-19 pandemic. On May 25, 2020, the Company sold its interest in EML to another shareholder of EML for a nominal amount. Upon completion of the disposition, EML repaid $258 of a $707 loan owing by EML to the Company as at the date of the sale and issued the Company a promissory note for the balance of $449 included in other assets.
| NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019(Unaudited)(expressed in thousands of Canadian Dollars except as otherwise indicated) | |||
|---|---|---|---|
| A summary of other assets is presented as follows: | |||
| As at | As at | ||
| June 30, 2020 | December 31, 2019 | ||
| Deposit per Hydro-Quebec contribution agreement | 5,681 | 5,681 | |
| Investments in Califormulations and QuebecCo | 3,887 | 3,887 | |
| Term deposits held as collateral | 1,800 | 1,800 | |
| Deposits related to facility construction and operational readiness | 830 | 690 | |
| Term deposits not held as collateral | 200 | 292 | |
| Accrued interest receivable | 81 | 60 | |
| Other | 541 | 68 | |
| 13,020 | 12,478 | ||
| Less: Current portion | (627) | (534) | |
| 12,393 | 11,944 | ||
| 11. | LEASES | ||
| Below is a summary of the activity related to the Company's lease liabilities: | |||
| Lease liabilities, December 31, 2019 | $ | 3,545 | |
| Additions | 1,709 |
| Lease liabilities, December 31, 2019 | $3,545 |
|---|---|
| Additions | 1,709 |
| Interest on lease liabilities | 248 |
| Interest payments on lease liabilities | (248) |
| Principal payments on lease liabilities | (169) |
| Foreign exchange differences | 2 |
| Lease liabilities, June 30, 2020 | $5,087 |
| Current portion lease liabilities, June 30, 2020 | $858 |
| Long-term portion lease liabilities, June 30, 2020 | $4,229 |
(expressed in thousands of Canadian Dollars except as otherwise indicated)
The Company received certain immaterial rent deferrals arising from conditions created by COVID-19 from one of its landlords. The Company applied the practical expedient under IFRS 16 not to account for the rent deferral as a modification to the Company's lease liabilities, however the Company's lease obligation as at June 30, 2020 was updated to account for the deferral of certain rent payment obligations. 12. SHARE CAPITAL
Issued capital
- During the six months ended June 30, 2020, a total of 847,600 shares of the Company were issued as a result of previously issued and outstanding options of the Company that were exercised at a weighted average exercise price of $0.50 per option, for aggregate gross proceeds of $424 (six months ended June 30, 2019 – 369,933 shares exercised at a weighted average exercise price of $0.86 per option, for aggregate gross proceeds of $319).
- b) During the six months ended June 30, 2020, a total of 500,500 shares of the Company were issued as a result of 500,500 previously issued and outstanding warrants of the Company that were exercised at a weighted average exercise price of $0.38 per option, for aggregate gross proceeds of $191 (six months ended June 30, 2019 - 5,105,411 warrants exercised at a weighted average exercise price of $2.19 per warrant, for aggregate gross proceeds of $11,206). c) During the six months ended June 30, 2020, a total of 27,174 shares of the Company were issued as a result of d) During the six months ended June 30, 2020, a total of 24,691 shares of the Company were issued as a result of e) On April 14, 2020, the Company issued a total of 6,025,042 shares to a consultant of the Company to settle accounts
- 27,174 previously issued and outstanding equity settled restricted share units ("RSU's") of the Company that were previously issued at a fair value of $2.76 per RSU. There are no cash proceeds related to RSUs.
- 24,691 previously issued and outstanding convertible share units of the Company that were previously issued at a fair value of $4.05 per convertible share units. There are no cash proceeds related to convertible share units.
- payable of $1,626.
- f) On April 17, 2020, the Company completed a bought deal financing of 20,536,700 units and 10,268,350 warrants at a price of $0.28 for aggregated proceeds of $5,750. Each unit is comprised of one common share and one-half of one common share purchase warrant of the Company with value of the warrant being calculated using the Black Scholes valuation approach of $0.04 per half warrant. Each full warrant entitles the holder to purchase one common share of the Company at an exercise price of $0.38 for a period of 36 months from the date they were received on April 27, 2020. In addition, 1,232,202 broker warrants of the Company were issued to the underwrite in this bought deal; each broker warrant is exercisable at a price of $0.38 per share for a period of 36 months from April 27, 2020 into one common share of the Company. g) On April 30, 2020, the Company issued a total of 833,333 shares with a value of $250 to a former employee in h) On June 12, 2020, the Company completed a bought deal financing of 43,125,000 units and 43,125,000 warrants 13. CONTRIBUTED SURPLUS
- respect of severance.
- at a price of $0.40 for aggregated proceeds of $17,250. Each unit is comprised of one common share and one common share purchase warrant of the Company with value of the warrant being calculated using a market price approach of $0.09 per warrant. Each warrant entitles the holder to purchase one common share at an exercise price of $0.50 for a period of 48 months from the date they were received on June 12, 2020.
[a] Share based payments
The Company's Employee Stock Option Plan (the "ESOP") is administered by the Board of Directors of the Company which establishes exercise prices, at not less than the market price at the date of grant, and expiry dates, which have been set at three years from issuance. Options remain exercisable in increments with one third being exercisable on each of the first, second and third anniversaries from the date of the grant, except as otherwise approved by the Board of Directors.
(expressed in thousands of Canadian Dollars except as otherwise indicated)
Under the ESOP, the Board of Directors may grant options, alone or in combination with other plans, of up to 10% of the common shares outstanding at the time of the grant for a term not exceeding five years. The exercise price of the options under the ESOP is fixed by the Board of Directors of the Company at the time of the grant at the market price of the common shares, subject to all applicable regulatory requirements. For the three and six months ended June 30, 2020, the Company recorded $1,442 and $3,595 respectively, in non-cash share-based compensation expense pursuant to the grant of stock options (three and six months ended June 30, 2019 - $4,378 and $7,736, respectively).
The following is a summary of the changes in the Company's ESOP options:
| For the six months endedJune 30, 2020 | For the year endedDecember 31, 2019 | ||||
|---|---|---|---|---|---|
| Number ofOptions | WeightedAverageExercise Price | Number ofOptions | WeightedAverageExercise Price | ||
| Outstanding - beginning of period | 17,897,599 | 3.24 | 12,430,732 | 2.83 | |
| Granted | 2,749,000 | 0.37 | 7,172,000 | 3.73 | |
| Exercised | (847,600) | 0.50 | (506,933) | 0.85 | |
| Cancelled/Expired | (3,043,599) | 2.22 | (1,198,200) | 2.91 | |
| Outstanding, end of period | 16,755,400 | 3.09 | 17,897,599 | 3.24 | |
| Exercisable, end of period | 6,359,995 | 3.47 | 5,871,199 | 2.34 | |
| Grant date | OptionsOutstanding# | OptionsExercisable# | ExercisePrice$ | WeightedAverageremainingcontractuallife ofoutstandingoptions in years | |
| October 2, 2017 - January 12, 2018March 28, 2018 | 1,972,4003,799,000 | 1,516,0002,540,667 | $1.15 - $1.65$3.65 | 0.26 - 0.540.74 | |
| June 25, 2018 - December 14, 2018 | 2,093,333 | 793,329 | $3.08 - $6.91 | 2.99 - 3.46 | |
| January 8, 2019 - August 21, 2019 | 5,525,667 | 1,510,000 | $2.67 - $5.13 | 3.53 - 4.15 | |
| November 18, 2019 | 771,000 | - | $0.83 | 4.39 | |
| March 3, 2020 - May 28, 2020 | 2,594,000 | - | $0.37 - $0.51 | 4.70 - 4.91 | |
| Balance, June 30, 2020 | 16,755,400 | 6,359,995 | 2.77 |
In determining the amount of share-based compensation, the Company uses the Black-Scholes option pricing model to establish the fair value as at the grant date of options granted. Stock options granted during the respective periods highlighted below were fair valued based on the following weighted average assumptions:
| Averages for the six months ended | Averages for the year ended | |
|---|---|---|
| June 30, 2020 | December 31, 2019 | |
| Risk-free interest rate | 0.54% | 1.55% |
| Expected dividend yield | Nil | Nil |
| Expected annualized volatility | 82.08% | 83.04% |
| Expected life of options (years) | 3.50 | 3.50 |
| Black-Scholes value of each option | $0.13 | $2.04 |
Volatility was estimated by using the historical volatility of the Company and other companies that the Company considers comparable that have trading and volatility history. The expected life of the options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the expected life of the options is indicative of future trends, which may also not necessarily be the actual outcome. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate was based upon the Canada government bonds with a remaining term equal to the expected life of the options.
(expressed in thousands of Canadian Dollars except as otherwise indicated)
[b] Reserve for warrants
The following table reflects the continuity of warrants:
| Number ofwarrants | Weighted AverageExercise Price | Amount, net ofwarrant issue costs | |
|---|---|---|---|
| # | $ | $ | |
| Balance, December 31, 2019 | 91,855,628 | 4.02 | 64,415 |
| Warrants exercised in the period | (500) | 1.00 | - |
| Balance, March 31, 2020 | 91,855,128 | 4.02 | 64,415 |
| Bought deal offering units | 57,213,052 | 0.48 | 4,533 |
| Issuance of warrants in connection with debt | 5,000,000 | 0.40 | 621 |
| Warrants exercised in the period | (500,000) | 0.38 | (31) |
| Warrants expired in the period | (15,092,363) | 7.00 | (8,150) |
| Balance, June 30, 2020 | 138,475,817 | 2.11 | 61,388 |
| Number ofwarrants | Weighted AverageExercise Price | Amount, net ofwarrant issue costs | |
|---|---|---|---|
| # | $ | $ | |
| Balance, January 1, 2019 | 69,759,127 | 5.07 | 62,801 |
| Warrants exercised in the period | (4,264,354) | 2.15 | (1,749) |
| Balance, March 31, 2019 | 65,494,773 | 5.26 | 61,052 |
| Warrants exercised in the period | (841,057) | 2.40 | (390) |
| Expiry of warrants in the period | (25,119) | 2.15 | (10) |
| Balance, June 30, 2019 | 64,628,597 | 5.29 | 60,652 |
| Warrants exercised in the period | (350,156) | 2.16 | (90) |
| Expiry of warrants in the period | (30,813) | 2.15 | (8) |
| Balance, September 30, 2019 | 64,247,628 | 5.31 | 60,554 |
| Bought deal offering units | 20,608,000 | 1.00 | 3,103 |
| Issuance of warrants in connection with debt | 7,000,000 | 1.00 | 758 |
| Balance, December 31, 2019 | 91,855,628 | 4.02 | 64,415 |
As at June 30, 2020, the following warrants were outstanding:
| Exercise | Number of Warrants | ||
|---|---|---|---|
| Expiry Date | Price | ||
| $ | # | ||
| October 2, 2020 | 3.00 | 130,250 | |
| February 28, 2021 | 3.00 | 34,477,515 | |
| April 19, 2021 | 9.00 | 12,592,500 | |
| June 26, 2021 | 9.50 | 1,955,000 | |
| December 19, 2022 | 1.00 | 20,607,500 | |
| December 20, 2022 | 1.00 | 7,000,000 | |
| April 1, 2023 | 0.39 | 3,000,000 | |
| April 13, 2023 | 0.39 | 1,500,000 | |
| April 27, 2023 | 0.38 | 11,000,552 | |
| May 27, 2024 | 0.50 | 500,000 | |
| June 12, 2024 | 0.50 | 45,712,500 | |
| 138,475,817 |
[c] Restricted share units
Under the Company's Restricted Share Unit Plan ("RSU Plan"), restricted share units may be granted up to a fixed maximum of 5,000,000 common shares, which entitle the holder to receive one common share without payment of additional
(expressed in thousands of Canadian Dollars except as otherwise indicated)
consideration at the end of the restricted period, as determined by the Board of Directors of the Company at the time of the grant. The RSU's vest in tranches based on certain performance conditions being met, with share-based compensation expense being recognized from grant to the expected performance completion date.
| June 30, 2020 | December 31, 2019 | |||
|---|---|---|---|---|
| Number ofUnits | WeightedFair Value | Number ofUnits | WeightedFair Value | |
| Outstanding - beginning of period | 54,348 | 2.76 | — | - |
| Granted | 2,550,000 | 0.27 | 54,348 | 2.76 |
| Exercised | (27,174) | 2.76 | — | - |
| Forfeited | (150,000) | 0.27 | — | - |
| Outstanding, end of period | 2,427,174 | 0.30 | 54,348 | 2.76 |
| The accounting fair value of the equity settled RSUs as at the grant date is calculated using the number of RSU's expectedto be earned multiplied by the grant date fair market value of a share of the Company's stock. Each reporting period, thenumber of RSU's that are expected to be earned is re-determined and the "fair value" of these RSU's is amortized over theremaining requisite period less amounts previously recognized. | ||||
| SUPPLEMENTARY CASH FLOW INFORMATIONThe changes in non-cash working capital items are as follows: | ||||
| For the three months ended | For the six months ended | |||
| Prepaid expenses | June 30, 2020$629$ | June 30, 2019(2,282)$ | June 30, 2020(191)$ | June 30, 2019(2,680) |
| For the three months ended | For the six months ended | |||||
|---|---|---|---|---|---|---|
| June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||
| Prepaid expenses | $629$ | (2,282)$ | (191)$ | (2,680) | ||
| Harmonized sales tax receivable | 20 | (3,555) | 6,007 | (481) | ||
| Accounts receivable | (1,203) | (433) | (1,168) | (1,571) | ||
| Capitalized cost of biological assets | 2,284 | (7) | 3,382 | 20 | ||
| Inventory | (3,557) | (264) | (6,910) | (9) | ||
| Other current assets | (129) | (1,951) | (237) | (1,972) | ||
| Other assets | (534) | (4,585) | (449) | (20,367) | ||
| Accounts payable and accrued liabilities | 1,677 | (301) | (102) | 2,547 | ||
| Deferred revenue | 135 | — | 135 | — | ||
| Total | $(678)$ | (13,378)$ | 467$ | (24,513) |
(expressed in thousands of Canadian Dollars except as otherwise indicated)
The Company has the following gross contractual obligations as at June 30, 2020, which are expected to be payable in the following respective periods:
| Contractual cash flows | ||||||||
|---|---|---|---|---|---|---|---|---|
| Carryingamount | Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | |
| $ | $ | $ | $ | $ | $ | $ | $ | |
| Accounts payable and accrued | ||||||||
| liabilities | 34,382 | 34,664 | 32,672 | 1,992 | - | - | - | - |
| Loans (1) | 37,933 | 49,587 | 2,986 | 46,601 | - | - | - | - |
| Lease liabilities | 5,087 | 8,822 | 445 | 837 | 771 | 627 | 612 | 5,530 |
| Commitments related to construction | ||||||||
| (2) | - | 631 | 631 | - | - | - | - | - |
| Contingent consideration payable | 101 | 160 | - | - | 160 | - | - | - |
| Total contractual obligations | 77,503 | 93,864 | 36,734 | 49,430 | 931 | 627 | 612 | 5,530 |
(1) Contractual cash flows include interest payable until the maturity date for the Senior Loan and Revolver Loan amounts outstanding as at June 30, 2020. This table does not include additional loan advance completed subsequent to June 30, 2020. Refer to Notes 4 and 20.
(2) Payables related to construction activities that have been incurred are included in accounts payable and accrued liabilities whereas amounts yet to be incurred have no carrying amount as at June 30, 2020 but have been committed and disclosed as contractual cash flows expected in fiscal year 2020.
[a] Construction agreements
The Company has entered into contracts to facilitate the construction of its facilities in Hamilton, Ontario and Salaberry-de-Valleyfield, Québec with various vendors. Pursuant to some of these agreements, as at June 30, 2020, the Company has letters of credit in the amount of $1,800 which may be drawn upon in the event of material breaches of the respective agreements. These letters of credit bear conventional rates of interest partially offset by the interest earned on guaranteed investment certificates ("GIC") securing the letters as collateral. The Company has pledged corresponding GICs as collateral, which has been recorded in other assets. As at June 30, 2020, there have been no breaches and no amounts have been drawn on the letters of credit. As at June 30, 2020, the Company has outstanding deposits on construction related activities of $830 (December 31, 2019 – $690) also included in other assets.
The Company has also entered into escrow agreements in prior years with its construction partners in Ontario and in Québec and as such $8,578 was included in restricted cash at December 31, 2019. During the six months ended June 30, 2020, the Company paid $8,359 to the construction partners leaving a balance of $219 in restricted cash as at June 30, 2020.
[b] Other contractual commitments
The lease for the office space of the Company's headquarters required the issuance of a letter of credit in the amount $350, which may be drawn upon by the landlord in the event of a material breach of the agreement. As at June 30, 2020, there have been no breaches and no amounts have been drawn upon this letter of credit.
The Company has also entered into certain agreements for equipment and services that allow for deferred payment terms and/or the inclusion of permitted subordinated liens on personal property, per the Senior Loan agreement, associated with the equipment located at both the Hamilton and the Quebec facilities should there be any material breaches of the agreements. As at June 30, 2020, there have been no breaches of the respective agreements.
[c] Claims and Litigation
From time to time, the Company and/or its subsidiaries may become defendants in legal actions and the Company intends to defend itself vigorously against all legal claims. The Company is subject to certain employment related claims by former employees for which provisions have been recognized only to the extent that they are likely to result in future economic outflows in accounts payable and accrued liabilities. The Company has also been subject to a claim by former warrant holders for approximately $1,250 and a separate claim for a customer in Europe for approximately $2,100. No provision in relation to these claims has been recognized as the Company estimates that it is more likely than not that a present obligation does not exist that will result in a payment to be made by the Company for these claims. Other than the claims previously
The Green Organic Dutchman Holdings Ltd. NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (Unaudited) 16. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
(expressed in thousands of Canadian Dollars except as otherwise indicated)
described, the Company is not aware of any other material or significant claims against the Company.
[a] Fair values
The Company's financial instruments were comprised of the following as at June 30, 2020: cash and cash equivalents; restricted cash; refundable sales tax receivable; trade receivables; due from related parties; certain other investments; certain other current assets; accounts payable and accrued liabilities; loans and contingent consideration.
The fair values of the financial assets and financial liabilities are determined at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The assumption for the instruments recorded at amortized costs that the instruments' fair values approximate their carrying amounts is largely due to the short-term maturities of these instruments.
[b] Fair value hierarchy
Financial instruments recorded at fair value on the consolidated statement of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
- Level 1 valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
- Level 2 valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
- Level 3 valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.
During the three and six months ended June 30, 2020, there were no transfers of amounts between levels (three months ended December 31, 2019 – none).
[c] Management of risks arising from financial instruments
[i] Market risk
All foreign currencies shown in this note are also presented in thousands.
Foreign currency risk
Foreign currency risk arises due to fluctuations in the fair value or cash flows of financial instruments due to changes in foreign exchange rates. As at June 30, 2020, a portion of the Company's financial assets and liabilities held in US dollars ("USD"), Polish Zloty ("PLN") and European Euros ("EUR") which consisted of cash and cash equivalents, trade receivables, accounts payable and accrued liabilities, lease liabilities, loans, and other assets. The Company's objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows by transacting, to the greatest extent possible, with third parties in the functional currency. The Company is exposed to currency risk in other comprehensive income, relating to foreign subsidiaries which operating in a foreign currency. The Company has not used foreign exchange contracts to hedge its exposure to foreign currency cash flows for the three months ended June 30, 2020 as management has determined that this risk is not significant at this time. The Company is exposed to unrealized foreign exchange risk through its accounts payable and accrued liabilities. As at June 30, 2020, a 10% change in the foreign exchange rate would result in an unrealized gain or loss of approximately $1,709.
Interest rate risk
The Company's exposure to interest rate risk relates to any investments of surplus cash as the Company's debt is fixed at a prescribed rate. The Company may invest surplus cash in highly liquid investments with short terms to maturity that would accumulate interest at prevailing rates for such investments. As at June 30, 2020, the Company had term deposits of $2,000 bearing interest between 1.00% and 2.00% (December 31, 2019 - $2,000, bearing interest between 1.60% and 3.05%). The Company also has $219 in restricted cash held in trust related to the Valleyfield and Hamilton construction projects and
(expressed in thousands of Canadian Dollars except as otherwise indicated)
earning a conventional rate of interest from a reputable top tier Canadian bank.
[ii] Credit risk
Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit-related losses in the event of non-performance by the counterparties.
The carrying amount of cash and cash equivalents, trade receivable, refundable sales tax receivable, due from related parties, prepaids and deposits, and other assets represents the maximum exposure to credit risk as at June 30, 2020. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors. Credit risk is mitigated by entering into sales contracts with stable, creditworthy parties and through frequent reviews of exposures to individual entities.
The Company assesses the credit risk of trade receivables by evaluating the aging of trade receivables based on the invoice date. The carrying amount of trade receivables is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statements of loss and comprehensive loss. When a trade receivable balance is considered uncollectible, it is written off against the allowance for expected credit losses. Subsequent recoveries of amounts previously written off are credited against operating expenses in the consolidated statements of loss and comprehensive loss. As at June 30, 2020, the Company's trade receivables are primarily concentrated in Canada with the exception of $712 in Europe. The Company had two customers whose balances individually were greater than 10% of total trade receivables as at June 30, 2020 (December 31, 2019 – one customer).
The following tables set forth details of trade receivables, including aging of trade receivables that are not overdue, as well as an analysis of overdue amounts and related allowance for doubtful accounts:
| June 30, 2020 | December 31, 2019 | |
|---|---|---|
| $ | $ | |
| Total trade receivables | 3,350 | 2,254 |
| Less allowance for expected credit losses | (694) | (766) |
| Total trade receivables, net | 2,656 | 1,488 |
| Of which | ||
| Current | 2,578 | 1,053 |
| 31-90 days | 22 | 372 |
| Over 90 days | 750 | 829 |
| Less allowance for expected credit losses | (694) | (766) |
| Total trade receivables, net | 2,656 | 1,488 |
| [iii] Liquidity riskLiquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Companymanages its liquidity risk by reviewing on an ongoing basis its capital requirements in relation to its current cash balances,maturity schedules and internal budgets. Refer to Note 15 – Commitments and Contingencies. | ||
| SEGMENTED INFORMATION | ||
| The Company's business activities are conducted through one operating segment which consists of the production anddistribution of cannabis and related products. Segment performance is based by region. | ||
| [i] Revenue, gross profit and select expenses by region is as follows |
[iii] Liquidity risk
[i] Revenue, gross profit and select expenses by region is as follows
For the three months ended June 30, 2020, the Company had one customer that accounted for 28% of total revenue (three months ended June 30, 2019 – one customer that accounted for 15% of total revenue). For the six months ended June 30, 2020, the Company had one customer that accounted for 17% of total revenue (six months ended June 30, 2019 – two customers that accounted for 12% and 10% of total revenue).
(expressed in thousands of Canadian Dollars except as otherwise indicated)
| For the three months endedJune 30, 2020 | For the six months endedJune 30, 2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Europe | North America | Total | Europe | NorthAmerica | Total | |||||||
| Revenue | $2,112 | $2,713 | $ | 4,825 | $ | 4,507 | $ | 3,377 | $ | 7,884 | ||
| Gross profit | $1,089 | $237 | $ | 1,326 | $ | 2,574 | $ | 458 | $ | 3,032 | ||
| Operating expenses, excluding stockbased compensation, depreciation andamortization | $1,529 | $6,740 | $ | 8,269 | $ | 3,630 | $ | 17,414 | $ | 21,044 | ||
| Share based compensation | $— | $1,657 | $ | 1,657 | $ | — | $ | 4,127 | $ | 4,127 | ||
| Depreciation and amortization | $369 | $912 | $ | 1,281 | $ | 913 | $ | 2,087 | $ | 3,000 | ||
| Non-operating income | $159 | $(268) | $ | (109) | $ | (418) | $ | (57,931) | $ | (58,349) | ||
| Net loss | $(435) | $(9,340) | $ | (9,775) | $ | (2,109) | $ | (81,102) | $ | (83,211) |
| For the three months endedJune 30, 2019 | For the six months endedJune 30, 2019 | ||||||
|---|---|---|---|---|---|---|---|
| Europe | North America | Total | Europe | NorthAmerica | Total | ||
| Revenue | $2,878$ | 18$ | 2,896 | $5,281 | $ | 20$ | 5,301 |
| Gross profit (loss) | $1,975$ | (18)$ | 1,957 | $3,126 | $ | 198$ | 3,324 |
| Operating expenses, excluding stock-basedcompensation, depreciation andamortization | $1,758$ | 11,445$ | 13,203 | $3,072 | $ | 22,242$ | 25,314 |
| Share based compensation | $—$ | 4,433$ | 4,433 | $— | $ | 7,852$ | 7,852 |
| Depreciation and amortization | $434$ | 304$ | 738 | $715 | $ | 584$ | 1,299 |
| Non-operating income | $(611)$ | 361$ | (250) | $(562) | $ | 1,052$ | 490 |
| Net loss | $(764)$ | (15,839)$ | (16,603) | $(1,266) | $ | (29,428)$ | (30,694) |
[ii] Property, plant and equipment, net is domiciled as follows
| June 30, 2020 | December 31, 2019 | |||
|---|---|---|---|---|
| North America | $204,720$ | 232,827 | ||
| Europe | 4,087 | 4,206 | ||
| $208,807$ | 237,033 |
[iii] Intangible assets and goodwill, net are domiciled as follows
| June 30, 2020 | December 31, 2019 | |||
|---|---|---|---|---|
| North America | $3,801$ | 5,032 | ||
| Europe | 15,409 | 15,088 | ||
| $19,210$ | 20,120 |
(expressed in thousands of Canadian Dollars except as otherwise indicated)
The Company's objective is to maintain sufficient capital base to maintain investor, creditor and supplier confidence and to sustain future development of the business and provide the ability to continue as a going concern (See Note 2[i] – Going Concern). Management defines capital as the Company's shareholders' equity and loans. The Board of Directors of the Company does not establish quantitative return on capital criteria for management but rather promotes year over year sustainable profitable growth. The Company currently has not paid any dividends to its shareholders. As at June 30, 2020, total managed capital was comprised of share capital and loans of $485,763 (December 31, 2019 - $446,084), contributed surplus of $104,326 (December 31, 2019 - $95,763), and reserve for foreign translations of $164 (December 31, 2019 – $2,241). There were no changes in the Company's approach to capital management during the three and six months ended June 30, 2020 (three and six months ended June 30, 2019 – no changes). 19. OPERATING EXPENSES
| surplus of $104,326 (December 31, 2019 - $95,763), and reserve for foreign translations of $164 (December 31, 2019 –$2,241). There were no changes in the Company's approach to capital management during the three and six months endedJune 30, 2020 (three and six months ended June 30, 2019 – no changes). | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| The following table presents stock-based compensation, depreciation and amortization by function: | |||||||||||||
| Three months endedJune 30, 2020 | June 30, 2019 | Six months endedJune 30, 2020June 30, 2019 | |||||||||||
| Cost of sales related to inventory production | $ | 958$ | 696 | $ | 2,270$ | 1,204 | |||||||
| Sales and marketing expenses | 284 | 567 | 692 | 1,004 | |||||||||
| Research and development expenses | 169 | 373 | 414 | 712 | |||||||||
| General and administrative expenses | 1,527 | 3,535 | 3,751 | 6,231 | |||||||||
| As described in Note 3(b), during the three months ended June 30, 2020, the Company received benefits under the CEWSand recognized the receipt of cash against the related personnel costs which amounted to $987, of which, $96 related to salesand marketing expenses, $45 related to research and development expenses and $342 in general and administrative expenses.The remainder of the benefits were allocated to inventory production related personnel. No subsidies were received duringthe three and six months ended June 30, 2019. | |||||||||||||
| 20. | EVENTS AFTER THE REPORTING PERIOD | ||||||||||||
| a) The Company obtained gross debt proceeds of $3,000 on July 7, 2020 in accordance with the modification of its RevolverLoan (See description in Note 4). | |||||||||||||
| b) On August 3, 2020 the Company was named as a defendant in a litigation matter commenced in the United States District |
b) On August 3, 2020 the Company was named as a defendant in a litigation matter commenced in the United States District Court for the Middle District of Georgia relating to its minority investment in a US based beverage incubation business, seeking, among other things, unquantified compensatory damages and injunctive relief. No provision in relation to this claim has been recognized as the Company estimates that it is more likely than not that a present obligation does not exist that will result in a payment to be made by the Company for this claim and the Company intends to vigorously defend the matter.